Legacy tech giant IBM (NYSE:IBM) is in the news though not for the most encouraging of reasons. On Tuesday, reports emerged that the company was cutting jobs in its marketing and communications division. Fundamentally, the IBM layoffs represent the opportunities and challenges behind the rise of artificial intelligence (AI).
According to a CNBC report, the tech firm colloquially known as “Big Blue” told employees in the impacted division that it’s slashing the size of its staff. The announcement occurred in a roughly seven-minute meeting, per an inside source.
Notably, IBM CEO Arvind Krishna told CNBC that the company was “massively upskilling all of our employees on AI” after it announced intentions in August to replace nearly 8,000 roles with digital intelligence protocols. Further, in the company’s earnings call in January, management stated that it was reducing headcount by 3,900 positions.
While tech stocks — including Big Blue — soared this year, the underlying enterprises have also contradicted sentiment with pink slips. To date, 204 tech firms have cut almost 50,000 jobs. January represented the business month for the reductions. In addition to the aforementioned IBM layoffs, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Unity (NYSE:U) all announced job cuts.
IBM Layoffs Focus on the Complex Issue of AI Adoption
Long a static investment, IBM stock demonstrated upward mobility in the past year, gaining roughly 57%. Further, on the financial front, the company has returned to growth in the past couple of years. However, as CNBC mentioned, expansion remains muted. Specifically, the tech giant has been attempting to get its foot into the AI door.
In response to the fervor surrounding OpenAI and its chatbot ChatGPT, IBM announced WatsonX in May. Billed as a development studio for companies, the platform can “train, tune and deploy” machine learning models. Promisingly, IBM’s generative AI and WatsonX products business doubled in size from the third quarter of 2023.
Nevertheless, the company engages in an intense rivalry with top-tier players in the enterprise AI arena. Along with Alphabet and Amazon, Microsoft (NASDAQ:MSFT) has similar offerings. Further, analysts believe IBM has been falling behind in the AI race, which underscores the IBM layoffs.
Even Krishna acknowledged the concerns. “I think that’s a fair criticism, that we were slow to monetize and slow to make really consumable the learnings from Watson winning Jeopardy.”
Still, management is hopeful that enterprise AI represents a long-term sizable opportunity. According to Grand View Research, the global enterprise AI market could expand at a compound annual growth rate (CAGR) of 34.6% from 2022 to 2030, ultimately yielding a valuation of $155.2 billion.
Why It Matters
Invariably, the IBM layoffs highlight the concerns about the dark side of digital intelligence: AI taking over human jobs. According to The New York Times, large language models could perform some of the tasks that 80% of American workers do. Still, because of the high error rate and unreliability, Harvard Business Review argues that AI just isn’t ready to make unsupervised decisions.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
